This article is Part 2 of a two-part series focusing on selling your business. Read part one here.
An estimated 70% of the businesses listed for sale do not close. It takes significant planning and preparation to successfully exit a business. The more transparent you are about any major business decisions, the more likely you are to build trust with a potential buyer. This can, in turn, result in obtaining a better price for your business. There is no guarantee that the right buyer will be interested in buying your business when you want to sell it, but here are some practical steps you can take to better position your business for sale.
Be sure your business’s legal entity has been properly set up and the company’s minutes are up to date. There should be a clear record of the approvals of major transactions and business decisions. If the business operates under an assumed name, the assumed name must be properly registered.
Most businesses have some intellectual property. The business’s name and logo can be very valuable assets. Determine whether you should have these trademarked.
Business’s agreements must be in writing. You should have agreements with your employees and independent contractors protecting your confidential information and intellectual property, and preventing employees from competing against your business. You should have clear agreements with your customers stating the scope of the services you are providing and how any changes to the scope of the project will be handled. This should include potential changes to the specific products you are selling, any warranties you are providing, any additional obligations both parties are agreeing to, how the agreement may be terminated and any issues that typically come up with your customers. Your agreements with suppliers and vendors should be consistent, and you should know the dates when any agreements are ready for renewal.
Keep complete and accurate financial records. Verify that you have at least three years of the business’s financial records on hand. These need to be clear and easy to understand. Address any outstanding IRS issues, other tax issues, or issues with lenders. Remove any personal expenses from the business’s financial records. Many privately-held businesses try to minimize profits on financial statements in order to reduce income taxes. These financial statements may need to be recast to properly reflect the true monetary benefits of the business.
Today’s buyers have strong computer and internet savvy and expect your business to use current technologies. If your business operations are out of date, be aware that most buyers will insist you modernize your operations before they will buy.
Be alert to possible ways to increase revenues. Explore new verticals and assess the feasibility of gaining new sales. Determine whether there are marketing strategies you can adopt that will improve sales. Investigate whether there are investments you should make in the business that will make a significant impact on sales.
Remove yourself from the daily business operations.
Oftentimes, a tremendous amount of information about how to run the business exists only in the business owner’s head. Take time to document these processes and procedures so you can transfer this knowledge to others. A potential buyer needs to be confident that they will be able to successfully run your business.
Selling your business can be complex. Business owners should consult with their legal and tax advisers to prepare for selling a business. For more information, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or firstname.lastname@example.org.